College Tuition

There is a law in economics, it deals with artificially propping up businesses, “goods” politicians deem necessary, production, etc. George Gilder notes this in a clip I isolated in an interview:

“A fundamental principle of information theory is that you can’t guarantee outcomes… in order for an experiment to yield knowledge, it has to be able to fail. If you have guaranteed experiments, you have zero knowledge”

R-PT’s note: this is how the USSR ended up with warehouses FULL of “widgets” (things made that it could not use or people did not want) no one needed in the real world. This economic law enforcers George Gilder’s contention that when government supports a venture from failing, no information is gained in knowing if the program actually works. Only the free-market can do this.

This applies to the real world in many ways, one being the co$t of college. Here is a very short video explaining this well:

OF course, one of my favorite videos of ALL TIME shows how students “benefit” from a subsidizing of college majors when in reality if they had to pay for college themselves it would be (a) cheaper, and (b) they would go into careers other than their majors… like sign flippers and bartenders (or other fields that are hurting):

The great conundrum of the U.S. economy today is that we have record numbers of working age people out of the labor ‎force at the same time we have businesses desperately trying to find workers. As an example, the American Transportation Research Institute estimates there are 30,000 – 35,000 trucker jobs that could be filled tomorrow if workers would take these jobs–a shortage that could rise to 240,000 by 2022.

While the jobs market overall remains weak, demand is high for in certain sectors. For skilled and reliable mechanics, welders, engineers, electricians, plumbers, computer technicians, and nurses, jobs are plentiful; one can often find a job in 48 hours. As Bob Funk, the president of Express Services, which matches almost one-half million temporary workers with emplo‎yers each year, “If you have a useful skill, we can find you a job. But too many are graduating from high school and college without any skills at all.”

The lesson, to play off of the famous Waylon Jennings song: Momma don’t let your babies grow up to be philosophy majors.

[….]

Kids commonly graduate from four year colleges with $100,000 of debt and little vocational training. A liberal arts education is valuable, but it should come paired with some practical skills.

Third, negative attitudes toward “blue collar” work. I’ve talked to parents who say they are disappointed if their kids want to become a craftsman–instead of going to college.This attitude discourages kids from learning how to make things, which contributes to sector-specific worker shortages….

(For full disclosure, my degree — theology — is one of the lowest paying degrees out there, and the lowest in employment opportunities.) In a short debate of the issue, Peter Schiff notes this “propping up” of useless degrees:

In the above discussion, Diana Carew seems to want jobs created by the government to fit the degrees earned. Otherwise, how would you force the private sector to create such opportunities unless you artificially demand [create] such opportunities? ~ There was zero unemployment in Soviet Russia, but all this “opportunity” collapsed due to economic laws… “this is how the USSR ended up with warehouses FULL of “widgets” (things made that it could not use or people did not want) no one needed in the real world. This economic law enforcers George Gilder’s contention that when government supports a venture from failing, no information is gained in knowing if the program actually works. Only the free-market can do this.” (Peter Schiff gets into the weeds a bit in this video.)

Here is another great PRAGER U video discussing the issue:

This is one of the areas Gary Johnson was correct — supply and demand:

FORBES notes well that most on the Left-end of the spectrum “don’t hate entrepreneurship and innovation,” but that their Econ 101 “part of the brain that deals with economics tends to shut down when discussing sectors like higher education (or healthcare).”

A WASHINGTON FREE BEACONpost relates findings from a Federal Reserve Bank (NY) study showing that the federal student loans have increased the cost of college tuition while at the same time college enrollment did not increase:

The expansion of federal student loans has caused tuition prices to increase without increasing college enrollment numbers, according to a report from the Federal Reserve Bank of New York.

According to the report, yearly student loan originations grew from $53 billion to $120 billion between 2001 and 2012, an increase of about 126 percent. During this time frame, average sticker-price tuition nearly doubled, rising from $6,950 to $10,200 in constant 2012 dollars.

The report found that for each dollar of federal aid applied, tuition increased as well.

“We find that each additional Pell Grant dollar to an institution leads to a roughly 55 cent increase in sticker price tuition,” the report says. “For subsidized loans, we find a somewhat larger passthrough effect of about 70 percent.”

[….]

The report makes reference to a hypothesis put forth by William Bennett, the Reagan-era secretary of education. The so-called “Bennett Hypothesis” holds that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that federal loan subsidies would help cushion the increase.”

Many have compared the market for postsecondary education to the housing market…. [see video at the top]

Which brings me to finish this post with a humorous look at the hipster douche-bags scratching his or her head in regard to high tuition costs via REASON-TV:

While federal aid has been valuable to those who otherwise would not be able to afford higher education, it has created something of a paradox.

Students accept whatever aid they can get, potentially failing to weigh the long-term financial risk once they earn that degree. The thinking goes that the debt will get paid back in time once they get a well-paying job.

The higher institutions, for their part, understand that with someone else footing the bill, they have very little accountability to the student to keep their costs in line. The institution will get paid no matter their tuition and fees.

Mary Bromley, the articles author, while making some good points didn’t include the idea that getting liberal arts degrees is not prepping the student for the shift towards technological needs for the future, nor did she deal with getting degrees that are actually useful in the real world environment. Mind you, that wasn’t the main idea or push of the article and may be a good “part deux,” but one of the main reasons tuition has risen IS BECAUSE the Federal Government is involved… practical ways to keep costs down that are in the article aside.

Likewise, automation (“robots”) will increasingly replace people in a “growing number of jobs, the skills employers are now looking for are technical skills.” But that doesn’t mean people will lose work over the issue, it means that society as a whole will need to change their focus to more technologically minded degrees. Frank Roberts in an earlier article continues:

What specific skills those might be will depend on the specific job you are looking at.

But, basically those skills would include

Computer skills

Problem Solving Skills

Communication Skills

Finance Skills

Business Skills

Science Skills

[In the article much is made of jobs being filled by persons holding bachelor degrees, but, that may merely be a reflection of the over supply of degrees. It should be noted that at the same time a higher percentage of those turned down for work were also bachelor degree holders.]

So a change to practical degrees dealing with the change in society is a requirement. NOT TO MENTION the trades that support families well should be encouraged as well. (Like a master tool maker, a carpenter, or a plumber, etc., these are high paying jobs that society will always need — and jobs like these are more apprenticeship driven rather that degree driven.)

…Beyond.com, found that a striking 64% of hiring managers said they would consider a candidate who hadn’t gone to a day of college. At the same time, fewer than 2% of hiring managers said they were actively recruiting liberal arts grads….

A person starting out in life should consider all of the above. Their choices made now will have lasting effects — speaking from experience.

(Via CITY JOURNAL), it is noted [well] that what many people THINK is the free market is anything but that:

…Free-market capitalism isn’t the same thing as radical libertarianism. Stan Veuger, an American Enterprise Institute scholar and economics lecturer at Harvard, dismisses what he calls “the anarcho-capitalist ideal”: an economy with no regulations and zero taxation. “There are places like Somalia that score well” on such purist definitions of free markets, he points out. To work well, capitalism needs “an environment where people can concentrate on being productive,” rather than, say, having private armies to assure personal safety. Free-market capitalism requires laws and rules, more than ever, now that more people live in close proximity in dense cities than ever before. Human activity leads to disputes, and disputes can be solved, or at least moderated, by resolutions that govern behavior. We often forget that markets don’t make broad public-policy decisions; governments do. Markets allocate resources under a particular policy regime, and they can provide feedback on whether policies are working. If a city, say, restricts building height to preserve sunlight in a public park, free-market actors will take the restricted supply into account, raising building prices. This doesn’t mean that the city made the wrong decision; it means that the city’s voters will risk higher housing prices in order to preserve access to sunlight. By contrast, a city that restricts housing supply and restricts prices via rent regulation is thwarting market signals—it takes an action and then suppresses the direct consequences of that action.

[….]

In critical areas of the economy, though, markets are in retreat. Behind the veneer of free-market governance is a deep expanse of government involvement in massive areas of the economy, such as the housing market and health care. People don’t make decisions on housing and health-care concerns every day, but when they do, they would benefit from the information that markets provide about whether they can afford a large house or whether a particular drug is worth the price. Government distortion of these key markets has scrambled these signals.

An annual congressional report, “Estimates of Federal Tax Expenditures,” gives insight into how Washington manipulates supply and demand in these sectors. Consider house prices. This year, Washington will pay homeowners $99 billion in forgone taxes to borrow money to purchase or refinance a house or to sell that house and reap the profit. Americans will buy or sell about $600 billion worth of houses this year. Government subsidy, then, represents nearly one-sixth of this market. The federal government also provides a guarantee for most mortgages, thanks to Fannie Mae and Freddie Mac, the two government-supported mortgage companies that benefited for decades from an implicit government guarantee before they got an explicit guarantee during the 2008 financial crisis.

These subsidies have fired the growth of the housing industry. Between 1975 and 1979, the U.S. Treasury paid out $102.6 billion in mortgage-interest breaks in today’s dollars. Between 2015 and 2019, the Treasury will pay out $419.8 billion in such tax favoritism—a more than fourfold rise, nearly ten times the population increase. The hike is particularly extraordinary, considering that in the late 1970s, the annual interest rate on a mortgage was 9 percent, twice what it is today. Taking today’s lower rates into account, Washington has increased the mortgage subsidy more than eightfold.

It’s no surprise that mortgage debt has soared, to $9.5 trillion, from $2.6 trillion in inflation-adjusted dollars in 1981. Back then, mortgage debt constituted 31 percent of our nation’s GDP. Today, it makes up nearly 53 percent. McCloskey, who thinks that free markets are generally healthy, acknowledges that “there are examples of the price signal not coming through.” The mortgage-interest deduction is “a silly idea,” she says, yet “very hard to change.”

Indeed, government subsidy is a critical factor in whether families can afford to purchase a home, and what kind of home, how large, and in what zip code. The home-mortgage deduction, then, helps determine how people live—yet we barely notice. Few of us consider how the government shapes one of the biggest decisions we’ll ever make, or how the U.S. government’s presence in the housing market maintains the value of our homes.

Housing subsidies that distort individual decisions also affect the biggest investment market in the world: the American housing market is worth $27.5 trillion—more than a tenth of the world’s $250 trillion in total wealth. The government, not capitalism, has determined the value of this market, which, in turn, helps determine the value of other markets: money that goes into this 11 percent of the global asset market can’t go into the other 89 percent. Home values also affect consumer spending. Someone whose home value is rising will feel freer to take on credit-card debt, for example.

Perhaps American house prices should be lower, and people should put their savings into companies that create products and jobs. Or perhaps house prices should be higher, accounting for a growing population, and people should live in smaller homes, spaced more closely together. In turn, perhaps the price of Chinese stocks would be higher, reflecting future growth, if Chinese investors did not divert money into U.S.-backed American housing debt. No one knows, because market signals get obscured.

One can agree or disagree with government jiggering of the housing market. What one cannot do is call it “free-market capitalism.” It is better described as democratic socialism. Americans have embraced government control of one of the world’s most important economic activities.

Free markets are under attack in health care, too, and the trend began long before Obamacare. Critics of our dysfunctional health-care system often blame capitalism for its excesses and distortions. But the health-care “market,” like the housing market, is responding rationally to government signals.

Washington provides massive tax breaks to health care. This year, as noted in Congress’s tax-expenditure report, the government will provide $143.8 billion in federal tax breaks for employers’ coverage of workers’ health insurance—more than the housing-tax break. The health-care subsidy has increased ninefold after inflation since the late 1970s. This tax break means that workers don’t see the full cost of their health-care coverage and thus cannot respond, when the price of health care rises, by demanding lower costs.

In providing Medicare to seniors and Medicaid to poorer people, Washington is the nation’s largest health-care customer, accounting for more than 30 percent of the United States’ annual $3 trillion in health-care spending. The largest customer in any market affects the entire market. Medicare and Medicaid stipulate how much the federal government will pay to hospitals and doctors for visits and surgeries. If hospitals and doctors can’t recover their costs and make an adequate profit under this price schedule, they charge private customers more. Medicare also distorts the price that drugmakers can charge for prescription drugs. Pharmaceutical companies know that their biggest customer is the government of the world’s richest sovereign nation. They have no way of setting market prices.

This past summer saw a health-care episode that, depending on your point of view, might have looked like an example of successful free-market capitalism or uncontrolled capitalist greed. Drugmaker Mylan said that it would increase the price of a decades-old product, the EpiPen allergy shot, to $600. That was the latest in a string of price hikes that have made the EpiPen 400 percent more expensive than when Mylan purchased the product a decade ago. Mylan has quintupled EpiPen’s revenues during that period, Bloomberg News reported, partly through savvy marketing. At one time, doctors prescribed EpiPens only to people with histories of severe allergic reaction. Now, people with more moderate allergies ask their doctors for EpiPens as a preventive measure.

The would-be free-market defense is that Mylan is making a decent profit, giving some people what they need (a lifesaving drug and medical device) and giving others what they want (a sense of security). Under this argument, Mylan can take that profit and invest it in new drug development. The would-be free-market criticism is that Mylan is enriching its executives by taking advantage of people who have no choice but to buy this product.

The reality: Mylan doesn’t operate in a free market, so one can neither praise nor blame markets for the EpiPen price. Mylan could increase prices and sales over a decade because its “customers” weren’t directly paying—most people buy their EpiPen through subsidized private insurance or through Medicare or Medicaid. Mylan could also boost EpiPen sales by petitioning the government for special benefits. Through lobbying, as Bloomberg notes, the company pushed 47 states to stock the pens in schools. And when federal regulations decreed that people should carry EpiPens in packs of two, the company stopped selling single EpiPens.

Lastly, Mylan lacks a competitor. If Mylan were operating in a competitive market, it could not have imposed these price increases, regardless of whether it wanted to invest the profits in new drug research or line its executives’ pockets. If Penguin Books tried to charge $300 for a copy of A Tale of Two Cities, another bookseller would price the tome at $8, and that would be the end of that.

Just as political forces helped shape Mylan’s pricing, politics, not markets, made the company retreat from its latest price increase. Democratic presidential nominee Hillary Clinton singled out the drugmaker as “the latest troubling example of a company taking advantage of its consumers.” But Mylan wasn’t exploiting consumers; it was only responding to perverse government signals.

Just as in housing, one can agree or disagree with the U.S. government’s policies in health care. One can argue that the government should pay high prices for drugs to signal to global investors that they can expect big payoffs for taking risks. Or, one can maintain that the government should use its negotiating power to lower prices, as European nations do. One cannot claim that either policy is a free-market one; both are social-democratic positions.

The government’s hand is increasingly busy in other areas of society, too, preventing market signals from coming through. In life’s decisions, getting an education is right up there with buying a house or choosing the right cancer medicine. Yet prospective students don’t determine the free-market value of a particular school’s curriculum through the amount that they are able and willing to pay. Instead, the government distorts this market. Washington provides $2.1 billion a year in tax subsidies for student loans. Just as important, it keeps the interest rates on these loans low by directly lending money to students. This cheap money has inflated the cost of education by giving students more borrowed money with which to pay and by removing any incentive for schools to control expenses. Over the past decade alone, the amount of debt that students owe has more than doubled after inflation, from less than $600 billion in 2005 to $1.4 trillion in mid-2016.

Just as in health care, America saw a striking example of how government, not the market, governs education over the summer. Just before the start of the fall term, ITT, a for-profit college with 35,000 students, said that it was going out of business. It wasn’t for a lack of customers; rather, it was for a lack of federal money backing those customers. Washington had demanded that the company pay much more to participate in the federal student-loan program, to account for, as the government put it, “significant concerns” about ITT’s “integrity, financial viability, and ability to serve students.” The college couldn’t pay, and it shuttered its classrooms. When a school cannot stay open without ceaseless infusions of government-guaranteed tuition payments, it is not operating in a free-market environment (and neither are its for-profit and nonprofit competitors). Just as with housing and health care, one can agree or disagree with government control of the higher-education market. One just can’t call it a free market….

On Thursday’s broadcast of Fox News Channel’s “The Five,” co-panelist Greg Gutfeld, author of “Not Cool: The Hipster Elite and Their War on You,” used his monologue segment to the hypocrisy in taking a $25,000 a month payout to point out income inequality at the City University of New York, which is a salary eight times what other professors make at the same institution.

“Today the award goes to New York Times blogger and Obama’s favorite economist Paul Krugman, who just got hired by the City University of New York to drop by once in a while,” Gutfeld said. “Apparently the school is going to pay the Krugster 25 grand a month to play a modest role at events dealing with inequality. Let’s recap – Krugs will yack about inequality for 25Gs a month. This is genius for is there no better way to point out the absurd extremes of inequality than getting paid eight times what other professors get? And no teaching. This is pure performance art — a stroke of masterful self-perpetuating employment. It’s like a fireman get paid for arson, a doctor spreading the flu so he can treat it. He creates the problem and arrives on the scene to provide the solution. He’s like alcohol”….

The Blaze points out that “CUNY is a publicly funded school… [and] according to Gawker pays its adjunct professors roughly $3,000 per course. Meanwhile, tenured professors make approximately $116,364 per year. Tenured professors are expected to teach, hold seminars and publish.” The Blaze continues:

The City University of New York will pay economist and New York Times columnist Paul Krugman an estimated $225,000 over the course of nine months to participate in certain activities involving the school’s Graduate Center and Luxembourg Income Study Center.

And people wonder why tuition is sooo high. Because they have to pay elite scumbags like Krugman.

On Thursday’s broadcast of Fox News Channel’s “The Five,” co-panelist Greg Gutfeld, author of “Not Cool: The Hipster Elite and Their War on You,” used his monologue segment to the hypocrisy in taking a $25,000 a month payout to point out income inequality at the City University of New York, which is a salary eight times what other professors make at the same institution.

“Today the award goes to New York Times blogger and Obama’s favorite economist Paul Krugman, who just got hired by the City University of New York to drop by once in a while,” Gutfeld said. “Apparently the school is going to pay the Krugster 25 grand a month to play a modest role at events dealing with inequality. Let’s recap – Krugs will yack about inequality for 25Gs a month. This is genius for is there no better way to point out the absurd extremes of inequality than getting paid eight times what other professors get? And no teaching. This is pure performance art — a stroke of masterful self-perpetuating employment. It’s like a fireman get paid for arson, a doctor spreading the flu so he can treat it. He creates the problem and arrives on the scene to provide the solution. He’s like alcohol”….

The Blaze points out that “CUNY is a publicly funded school… [and] according to Gawker pays its adjunct professors roughly $3,000 per course. Meanwhile, tenured professors make approximately $116,364 per year. Tenured professors are expected to teach, hold seminars and publish.” The Blaze continues:

The City University of New York will pay economist and New York Times columnist Paul Krugman an estimated $225,000 over the course of nine months to participate in certain activities involving the school’s Graduate Center and Luxembourg Income Study Center.

And people wonder why tuition is sooo high. Because they have to pay elite scumbags like Krugman.